Sen. Charles Schumer called for legislation yesterday that would require day-trading firms to more clearly explain the risks involved, and ban loan schemes that allow traders to go deep into debt.

In response to a blistering North American Securities Administrators Association report, Schumer said he would introduce a bill to clean up the industry.

“We need to make sure that consumers recognize the potential risks before they begin day trading,” Schumer said.

“The promise of easy money is a false siren call that has led too many people to financial ruin.”

Schumer’s bill would also call on the Federal Trade Commission to investigate day trading firms’ advertising practices. A number of state regulators have already brought complaints against firms for false advertising.

“These companies use misleading ads to entice people not only to spend their live savings but also to go deep into debt,” he said.

Current regulations require firms to disclose the risks of day trading, but leave the language of the disclosure up to the firm. Schumer’s bill would make a uniform policy across the industry.

It would also ban certain margin lending practices that regulators believe encourage people to trade more than they can afford to.

Buying “on margin” is when traders use securities they already own as collateral to buy more stock.

The National Association of Securities Dealers has asked its members to comment on margin rules at day trading outfits and may propose more regulations in that area.

The New York Attorney General’s office – which has been conducting an investigation into online brokerages – has never brought an action against day trading firms.

In July, the NASD censured and fined On-Site Trading of Great Neck, N.Y. $25,000 for failing to properly qualify and register 14 people.

The NASD has also given its approval to new rules that would require day trading firms to screen potential customers to ensure day trading will help them achieve their financial goals.

The Securities and Exchange Commission – which has been conducting its own investigation of day trading firms – will review the NASD’s proposed rule after putting it out for public comment.

The SEC investigation into the industry is looking at a broad range of compliance issues including: systems of supervision, disclosure of risk, capacity problems, and the margin rules.